Planning For Children

Life’s a snap, kids: first comes love, then comes marriage followed by financial problems.

Add children to the mix, especially the continuing passion play of financing a college education, and the increasing pressure can wreck a good marriage.

“I think we all underestimate the cost of raising a family,” says Mark Stempel, a certified financial planner and principal at Mark Stempel & Associates in Tucson, Ariz.

Many couples live paycheck to paycheck and don’t take the long view of their finances. Good planning with a mix of shrewd investment and regular saving can avoid, or at least ease, a future financial crunch.

Write this down: The longer you invest and save, the more successful you will be in achieving your goals. This means you should develop and launch your plan as early as you can.

It doesn’t need to be done all at once. Start with a household budget. The basic spending plan will help you track routine expenses and point the way long-term goals such as your kids’ college education and your retirement. 

Rule of thumb: funds set aside for college should come from money available after meeting monthly household expenses and savings, including retirement.

This just in: funding a college is daunting and the cost will continue to increase. The annual cost of a year’s tuition, room and board at a private school will average about $32,000 this year and will increase about 5% a year to $51,600 in 2017. State schools aren’t as expensive, but aren’t cheap, rising from about $12,000 this year to $19,400 in ten years for in-state tuition, the College Board says.

The 529 College Savings Plans, named for the section of the tax code that created them, now total about $105 billion in assets. Remember: Don’t fund a 529 Plan at the expense of your retirement.

Shop around for the plan that best meets your needs and remember that:
 

• Contribution limits to 529 Plans may vary by state.
• Fees and expenses vary by state and often among the different plans offered by the same state.
• Tax advantages may be different among the various state programs and may depend on whether the investor is a resident of the state sponsoring the plan.
• Check the performance of competing 529 Plans and remember past performance isn’t necessarily indicative of future performance.
• The plans offer investment options that range from higher-risk stock funds to blended funds with stocks and bonds to conservative short-term funds.

Contributions to a 529 Plan may offer state tax deductions and withdrawals may be exempt from state income tax. But a 529 Plan may limit your student’s ability to qualify for scholarships and other financial aid.

Check the fees because the charges reduce your yield. There may be program management, state administration, maintenance and termination fees.

Good students who work at it can find scholarships.  Don’t let college expenses break the bank: even if your child dreams of ivy-covered walls, State U will do just fine. Outside the office jerk who drops the name of a snooty school into every other sentence, a few years after graduation, who cares where you went to school?

You’ll raise your children to be self-sufficient adults. They’ll vote, drive, drink and go to war. Parents want the best for your children, but there’s no reason you should feel obligated to carry the complete burden of a college education.

Try injecting a little market incentive to your child’s education. Agree to pay a certain amount up front and your student will borrow the balance with a repayment plan based on academic performance.

The plan might look something like this:

A average – You pay 100% of your child’s loan.

B average – You pay 80% of your child’s loan.

C average – You pay 50% of your student’s loan.

D average or dropout – You student repays the entire loan.

That should focus your student’s mind – and teach a real world lesson that won’t be found in, say, Ode To The West Wind.

Many brokerage firms have Web sites offering financial planning tips, including T. Rowe Price (TROW), Merrill Lynch (MER), Goldman Sachs (GS) and Morgan Stanley (MS). Major banks also offer solid information, including JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC).